Notes on economic development in Africa

I have been doing some reading on economic development in Africa recently. The continent, if it is even possible to lump its many diverse nations together when discussing development, which is probably unwise, gets some bad press. But as development economist Ha-Joon Chang has said in his bestselling book, ‘Africa is not destined for underdevelopment‘.

That is refreshingly optimistic, and I humbly concur. Having said that, Chang thinks it is all about policies, but for me this is only part of the story. Why do bad policies persist? This is what we need to study. Poor nations whose people want things to improve via economic and social development need pragmatic and effective governments who can implement policies appropriate to their particular national contexts. These will vary from country to country, and over time.

Below I will share some of the ideas I have gathered which mainly draw on the work of political economists who have studied development processes across the African continent. Continue reading

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A Keynesian case for industrial policy

DSC00234Keynesian economics emphasises the primacy of aggregate demand or expenditure in driving the growth of output and employment. More mainstream neoclassical Keynesians, and the New Keynesians, tend to argue that inadequate demand is a short run phenomenon. The more radical post-Keynesians argue that it can be a problem in the long run too.

To varying degrees, these economists make the case for demand management via some combination of monetary, fiscal and exchange rate policy. The more radically minded have also long argued for incomes policies to manage wage and price inflation, and reform to the international monetary system in order to allow national governments the space to manage demand and promote full employment while preventing excessive and destabilising current account imbalances.

While Keynesian economics focuses on demand and, traditionally, macroeconomics, industrial policy aims to impact more on the supply-side of the economy and draws on microeconomics. Continue reading

Industrial policy: the last 30 years, the next 30 years

More on industrial policy, this time from Carol Newman of Trinity College, Dublin. She outlines some key findings on industrial development from some of the more successful late developers and looks ahead to what is necessary to encourage development in Sub-Saharan Africa. Interesting stuff. For such a short video, she manages to pack in quite a lot of information.

How did South Korea become so rich?

Here is a rather lively video introduction to South Korean development from VisualPolitik, describing how in the post-war period the political economy of the country encouraged rapid growth and transformation for many years. This enabled it to significantly catch up with the rich world’s economies. In the history of economic development, Korea has been a success story.

The video is partly wrong on the nature of trade policy: companies were encouraged to become successful exporters but there was at least temporary protection from selected imports at certain times.

It leaves out aspects such as the legacy of Japanese colonialism which bequeathed a particular political and social structure to the country. This certainly affected the path of development.

It also fails to mention the enlightened self-interest of the US, which provided aid and military support, as well as access to its markets, during the years of rapid growth. After all, they wanted to prevent the spread of communism and help create a successful capitalist South Korea. Continue reading

Governance reform and development: a heterodox view – Part 2

Following yesterday’s post, here are the final two parts of the discussion on governance reform and development by Mushtaq Khan, Professor of economics at SOAS in London.

Governance reform and development: a heterodox view

Today and tomorrow, I will be posting a series of short videos discussing the relationship between governance and development. So-called ‘good governance’ covers such factors as support for the rule of law, anti-corruption and effective democracy, which I think most people would agree are desirable, but are usually missing in the poorest countries.

Professor Mushtaq Khan of SOAS discusses how, in contrast to the ‘good governance’ agenda of the World Bank, these desirable factors have historically been the outcome of successful development rather than its cause.

Instead of policymakers in poor countries trying in vain to achieve good governance, they should instead try to promote developmental governance, which would enable their economies to successfully grow and develop and to some extent ‘catch up’ with their richer neighbours. This would then create the conditions for good governance to be more easily promoted and sustained. Continue reading

Africa is not destined for underdevelopment (Ha-Joon Chang’s Thing 11)

23-things-they-don-t-tell-you-about-capitalismAnother post in this occasional series of excerpts from Cambridge development economist Ha-Joon Chang‘s excellent 23 Things They Don’t Tell You About Capitalism (p.112-3, 124):

“Africa has not always been stagnant. In the 1960s and 70s, when all the supposed structural impediments to growth were present and often more binding, it actually posted a decent growth performance. Moreover, all the structural handicaps that are supposed to hold back Africa have been present in most of today’s rich countries – poor climate (arctic and tropical), landlockness, abundant natural resources, ethnic divisions, poor institutions and bad culture. These structural conditions seem to act as impediments to development in Africa only because its countries do not yet have the necessary technologies, institutions and organizational skills to deal with their adverse consequences. The real cause of African stagnation in the last three decades is free-market policies that the continent has been compelled to implement during the period. Unlike history or geography, policies can be changed. Africa is not destined for underdevelopment.

…[W]hat appear to be unalterable structural impediments to economic development in Africa (and indeed elsewhere) are usually things that can be, and have been, overcome with better technologies, superior organizational skills and improved political institutions. The fact that most of today’s rich countries themselves used to suffer (and still suffer to an extent) from these conditions is an indirect proof of this point. Moreover, despite having these impediments (often in more severe forms), African countries themselves did not have a problem growing in the 1960s and 70s. The main reason for Africa’s recent growth failure lies in policy – namely, the free-trade, free-market policy that has been imposed on the continent through the Structural Adjustment Programs. Nature and history do not condemn a country to a particular future. If it is policy that is causing the problem, the future can be changed even more easily. The fact that we have failed to see this, and not its allegedly chronic growth failure, is the real tragedy of Africa.”

I am broadly sympathetic with Chang’s argument, but he avoids a deeper exploration of the politics of development. It is all very well to say that bad policy is the cause of underdevelopment, but why do bad policies persist? The answer to this lies at the interface between politics and economics, namely in a political economy analysis.

Economic trends influence the distribution of power in society between particular interest groups, and this in turn has an effect on the choice of policies and institutions, and their subsequent success or failure. I will discuss the implications of this for development in future posts, focusing this week on Venezuela, which has been much in the news recently, for all the wrong reasons both economically and politically.